Do you smell smoke? I don’t know if I smell smoke, but the New York office leasing market is on fire. Everywhere you go Downtown—from Midtown south, Park Avenue south, Chelsea, Soho and many other locations—the real estate is white hot. The vacancy rate in Manhattan continues to recede, now at just 9.7 percent. We have not seen this consistent low vacancy since 2008. MHP research has pegged the total square footage leased through September 2014 at more than 28 million square feet and we project that over the course of 2014 more than 36 million square feet will have been leased through December 31.
Downtown is a riot happening before our eyes. What was once a sleepy section of town after 6 p.m., is now a fully-fledged, 24/7 neighborhood with activity at all hours. One of the many reasons for the reduction of the vacancy rate in the Downtown market has been the conversion of older office buildings to other uses including residential and hotel.
“The conversion of older office buildings provides a counterbalance to the new office space coming online at the World Trade Center and elsewhere,” the Downtown Alliance said in a recent report. “In just the last ten years, 10.1 million square feet of older office stock has been taken offline, an amount roughly equal to a fully-built World Trade Center site.” Necessary services are now in place, small business owners such as shoe repair, dry cleaners, grocery stores, liquor stores and nail salons, etc. There are now 36 hotels that are either in place or being built when there were five operating hotels in 2000.
Imagine what will happen when 2,500 people from Conde Nast move into their new offices at One World Trade beginning this month. There has been so much leasing activity that big block vacancies are beginning to shrink: Harper Collins in 185,000 square feet; NYC Health and Hospitals Corp. in 221,000 square feet; Nature Publishing in 176,000 square feet; Group M in 516,000 square feet; Time Inc. leased 670,000 square feet; MacMillan Publishing in 176,000 square feet; Teach for America in 170,000 square feet; Manhattan Community College leased 167,000 square feet; Hudson Bay/Saks in 405,000 square feet; The College Board in 145,000 square feet; Allied World Insurance leased 143,000 square feet; Moody’s in 129,000 square feet; Revlon in 91,000 square feet—fully 3 million square feet and counting.
Many more tenants have signed or are looking. TAMI tenants—Technology, Advertising, Media and Information—make up more than 40 percent of all relocations downtown and more than 800 TAMI companies are now located in the downtown market. More than 300,000 people come from Brooklyn every day to work in Manhattan.
This is no longer a world where particular tenants have to be in a certain location. Imagine what happens when the 25,000 people generated from these tenancies begin to walk the streets en masse. The new foot traffic benefits every small business downtown, improving the status of the middle class. We have witnessed seven consecutive months of positive absorption in the downtown market. Through September more than 4.5 million square feet has been leased and we are likely to surpass 6 million square feet leased in the downtown market in 2014, demonstrating how strong the downtown market is.
On the heels of all of this good news, MHP is now in contract to purchase 180 Maiden Lane with our partner Clarion Partners. It’s a spectacular 1.2 million square foot Class A building with 30,000-square-floor plates, with 270 degree views of the East River and the newly redeveloping South Street Seaport from every floor.
David Greene is Principal/President, Brokerage Services, MHP Real Estate Services